Compliancex

What will they try to get away with next?

According to the semi-annual report released on Wednesday by H. David Kotz, the Securities and Exchange Commission inspector general, a federal probe was thwarted when it was discovered that “an agency supervisor had improper contact with the fund manager.” Officials had been looking at the fund manager for possible market manipulation and insider trading.

Although the employee and hedge fund manager were not identified, the report reveals, that a supervisory attorney who worked at SEC headquarters,  allegedly discussed with the hedge fund manager, whether “it was legal for the manager to purchase certain securities before a company takeover.”

Due to the inquiry by the attorney, SEC officials decided that a lawsuit could not be pursued any further because the defense could use that conversation against them.

The report also revealed that the SEC supervisory attorney allegedly told the fund manager it was legal to purchase securities before a takeover offer and emailed him his cell phone number saying he might feel “freer to express his opinion on a non-SEC line.”

Inspector general Kotz has recommended the attorney be disciplined for his actions, which may include dismissal from the job. The inspector stated, “the emails create a cloud of confusion and they also indicate a close relationship” between the attorney and the fund manager. Communication between the two has been going on for years.

Another case in the report was involving an anonymous tip about a regional SEC office that uncovered massive fraud by a hedge fund manager, but did not inquire into his actions. The hedge fund manager, who was not named is also considered one of the contributors to the 2008 financial crisis. The regional office decided against any charges when an SEC official resigned and began working for the firm, citing ‘”conflict of interest.”

Other news in the report involved a senior officer who used two weeks of sick leave in May to vacation in Hawaii. In June she submitted an advanced request for more sick leave. The request was rejected when a supervisor questioned a request for sick leave so far in advance. The SEC official later resigned.

Another employee used her time in the office to work on her private for-profit travel business, getting paid overtime in the process.  The employee admitted what she did and said she signed up her supervisor, along with two other employees, to start their own businesses. Inspector general Kotz recommended “disciplinary action and referred the falsification of overtime to the Justice Department, which declined to prosecute.”

For a look at the full SEC report click here

Janelle Howell is the Editor and a contributing writer for CompliancEX and a freelance writer based in New York.